Romney-Style Plan Means Sharp Tax-Break Cuts, Study Says

July 10 (Bloomberg) -- The cut in individual income tax
rates proposed by Republican presidential candidate Mitt Romney
can be kept revenue-neutral only by curtailing or eliminating
many popular tax breaks, according to a nonpartisan study.

The study released today by the Tax Policy Center in
Washington estimated that in 2015, Romney would need to
eliminate $320 billion in tax breaks, or 30 percent of the
total, to pay for his proposed 20 percent reduction in tax
rates.

Because those tax breaks are supported by lawmakers,
taxpayers and interest groups, that goal sounds easier to
achieve than it really is, said Roberton Williams, a co-author
of the paper. He said President Barack Obama got nowhere in
Congress in proposing much less far-reaching limits on tax
breaks such as the deductions for mortgage interest and
charitable contributions. Republicans and Democrats, the real
estate industry and non-profit groups criticized curtailing
those tax breaks.

“You’ve got to get a big chunk of very popular tax
preferences to recoup the revenue loss,” said Williams, a
senior fellow at the center.

Romney has called for reducing individual income tax rates
by 20 percent, lowering the corporate rate to 25 percent from 35
percent and eliminating the estate tax and the alternative
minimum tax. He hasn’t said what tax breaks he would curtail to
make up for the lost revenue.

Upper Income

“Broadening the tax base would mean going into things like
all of the deductions and scaling them back for upper-income
people in particular,” Glenn Hubbard, a Romney economic
adviser, said on Bloomberg Television April 17. “There are
hundreds of ways to do that.”

Romney has said his proposal wouldn’t affect the current
distribution of the tax burden among different income levels,
and he has suggested that tax breaks may be eliminated or
limited only for higher-income taxpayers.

Broad reductions in tax breaks, the study said, would tend
to raise the effective rate for middle-income taxpayers.

Taking tax breaks for retirement savings, capital gains and
employer-provided health insurance off the table would make the
task more difficult, according to the study.

‘Very Difficult’

“It is possible to maintain revenues in the face of large
marginal tax rate cuts by paring back tax expenditures, but it
would be very difficult,” the study said. “The task becomes
much harder if another objective is to maintain the
progressivity of the federal income tax.”

Romney’s plan would repair the tax code and stimulate
entrepreneurship and job creation, said Amanda Henneberg, a
campaign spokeswoman, in a statement.

“This study is independent confirmation that even
employing an economic model that ignores the pro-growth effects
of reducing tax rates, these goals can be met,” she said.

The Obama campaign has criticized Romney for not saying how
he would offset the cost of the tax rate cuts.

“He refuses to say how he’d pay for that massive tax cut
for the wealthy, which means he’s either exploding the deficit
or, according to independent analysts, raising taxes on the
middle class by closing tax breaks for mortgages, health care,
retirement and other benefits the middle class rely on,” Ben
LaBolt, an Obama campaign spokesman, said in a statement July 9.

The study didn’t consider what it would take to offset the
cost of Romney’s proposals to eliminate the estate tax and
reduce the corporate tax rate. It also didn’t consider changes
other than curtailing tax breaks.

The analysis said reducing tax rates would make it harder
to offset the lost revenue by limiting tax breaks, because the
breaks become less valuable when rates are lowered. The Tax
Policy Center is a joint venture of the Urban Institute and the
Brookings Institution.